What is a Credit Score:
A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of the person. A credit score is primarily based on a credit report information typically sourced from credit reference bureaus (CRB).
Lenders, such as banks, use CRB report to evaluate the potential risk posed by lending money to clients and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. The CRB report is purely for the purposes of decision making on the part of the lender.
You should always work hard to ensure that you have a good credit score. You do this by ensuring that all debts are paid back in time eg Okoa jahazi, sacco loans, M-swari, mobile loans, bank loans, Helb loans etc.
CRB credit score normally ranges from 100 to 900 with higher scores indicating better credit quality than lower scores. Eg below 400 shows you are a serial defaulter or just do not repay loans. Between 400-700 you pay back your loans but with some default (delayed payments) i.e you do not pay on time. The credit report indicates the average delays in meeting payment obligations. Over 700 means that you are a good person to lend to, with no default history. If you want to know your credit score, visit our offices. We charge 200/- per report. Or check with Metropol by dialing *433# from your mobile phone.
At RG Sacco Ltd., we do not deny a member a loan based on poor crb rating, but may reduce the amount requested. Eg instead of giving him/her three times, we may give two times and see how they will repay.
What is a Credit Reference Bureau?
Here’s how a Credit Reference Bureau works:
- Data Collection: Credit Reference Bureaus gather credit-related information from various sources, including financial institutions (banks, microfinance institutions, Saccos, etc), telecommunications companies, utility providers, and other creditors. This information includes details about loans, credit cards, repayment history, defaults, bankruptcies, and any other credit-related activities.
- Credit Reports: Based on the collected data, Credit Reference Bureaus generate credit reports for individuals and businesses. These reports provide a comprehensive overview of an individual’s credit history, including their borrowing habits, repayment patterns, outstanding debts, and any negative credit events.
- Credit Scores: Credit Reference Bureaus also calculate credit scores, which are numerical representations of an individual’s creditworthiness. Credit scores are used by lenders to assess the credit risk associated with a potential borrower. A higher credit score indicates a lower credit risk, making it more likely for an individual to qualify for loans or other credit facilities.
- Credit Information Sharing: Credit Reference Bureaus facilitate the sharing of credit information among lenders and other authorized parties. When individuals apply for credit, lenders can request credit reports and scores from the Credit Reference Bureaus to evaluate the applicant’s creditworthiness. This helps lenders make informed decisions about loan approvals, interest rates, and credit limits.
- Consumer Protection: Credit Reference Bureaus play a role in consumer protection by ensuring the accuracy and integrity of credit information. Individuals have the right to access their credit reports and dispute any inaccuracies or errors. Credit Reference Bureaus are responsible for investigating such disputes and correcting the information if necessary.
In many countries, including Kenya, credit reports and scores from Credit Reference Bureaus are commonly used by financial institutions, employers, landlords, and other entities to assess creditworthiness and manage risk. It’s important for individuals to be aware of their credit standing and take steps to maintain a good credit history to improve their access to credit and financial opportunities.